Constant-collateral pyramiding trading strategies in futures markets
AbstractThis paper introduces constant-collateral pyramiding trading strategies, which can be implemented in the futures markets. For these strategies, expressions are derived for effective constraints on the number of futures contracts in the trader’s portfolio and on the trader’s wealth. Implications of the results are drawn regarding the degree of pyramiding adopted by a subgroup of noise traders who underestimate the probability of receiving a margin call when they engage in positive feedback strategies. Suggestions are made regarding how market regulators can use margin requirements to encourage these traders to adopt less aggressive pyramiding strategies. Copyright Swiss Society for Financial Market Research 2013
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Bibliographic InfoArticle provided by Springer in its journal Financial Markets and Portfolio Management.
Volume (Year): 27 (2013)
Issue (Month): 4 (December)
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Web page: http://www.springerlink.com/link.asp?id=119763
Noise trading; Feedback trading; Margin-setting methodology; Constant-collateral pyramiding trading strategies; G11; G18;
Find related papers by JEL classification:
- G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
- G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
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